Are you looking to buy that perfect house for your family but feeling insecure about a Home Loan because of your low CIBIL score? Read on to learn how your credit score is calculated and how you can get your dream house even if your score is low.
Nadia Fernandez was overcome with happiness as soon as she saw the white three-bedroom house with a cosy little garden. She knew instantly that this house was home. Having worked as a lawyer at her firm for three years, she spent a sizeable chunk of her savings to pay the booking amount. She was fairly certain that her Home Loan would be sanctioned without haste. She diligently followed the loan application procedure and filled in the lengthy and comprehensive forms only to be denied a Home Loan in the end. The reason? A low CIBIL score.
What is a CIBIL Score?
A CIBIL score or a credit score is a three-digit summary of your credit history. The score is calculated by examining your CIR (Credit Information Report) or credit payment history. Your CIBIL score is determined by your repayment history, credit balance, how prompt and timely you are with your repayments, the amount of your outstanding debts, the length of your credit history, your EMI to income ratio and your credit mix. Your bank needs this score to not only decide to sanction or deny your Home Loan, but to also estimate the loan amount and the interest to be charged.
Want to know your exact CIBIL score? Visit www.cibil.com and pay a fee to carry the process forward. Your score will range between 300 and 900. According to experts, 79% of loans get sanctioned if the minimum credit score is 750.
You can check your Home Loan eligibility for a Home Loan free of cost here:
Does a Low CIBIL Score Mean That You Should Forget About That Dream House?
Of course not! Here are a few strategies that Nadia was asked to consider to get a Home Loan even with a bad credit score:
- Rope in Your Better Half: If you are married and your spouse happens to have a good credit score, you can apply for a joint loan. This would better your chances since your incomes would also be combined, making your loan application more attractive to your lender.
- Consider Getting an NBFC Loan: The Reserve Bank of India defines a ‘Non-Banking Financial Company’ as a company that ‘has principal business of receiving deposits under any scheme or arrangement in one lump sum or in instalments by way of contributions or in any other manner, is also a non-banking financial company.’ NBFCs may be more amenable to offering you a loan even if you have a bad credit score. The only drawback is that the rates of interest can be pretty high.
- Peer to Peer Lending: Peer to peer (P2P) lending is also another option to consider if a low CIBIL score is standing in your way to secure that much-needed Home Loan. P2P lending matches lenders with borrowers and this is generally an online service. The service, because it is online, is more cost effective than traditional financial institutions. Lenders can hope to make higher returns and borrowers can borrow money at an interest that is best suited for them.
- Warm up to Your Relatives: If you are truly in need of a loan and all else seems to fail, you may consider borrowing from your friends or family. You can set a rate of interest and the tenure of the payment beforehand, once you calculate your financial ability to repay the loan. Make sure to get your understanding legalised to make this a transparent and effective method.
- Secured Credit Cards: Last but not the least, if you can spare yourself a maximum of a year to better your bad credit score, we would recommend you to consider doing so. One of them is to avail a secured credit card against deposits. The credit limit offered by the lender is based on the deposits you make. Your score will gradually but surely improve as you use the card and make timely payments!
There are other ways to improve your credit score such as paying off your debts, making timely repayments of existing loans, etc., and if you give yourself a year or two, you will surely succeed in moving that needle up! Nadia, for example, not only worked hard to improve her credit score, but also applied for a joint Home Loan with her father. Her application was approved, and the 3 BHK she had imagined her life in, now belongs to her.
Like Nadia, you too can strive towards a good CIBIL score to secure a Home Loan that will aid you in buying your house. You can get a good deal and you can get your Home Loan application processed faster.
Consider NBFCs such as Bajaj Finserv as your lender, which offers customised Home Loans for different buyers with some of the best interest rates in the domain.